Amazon, Microsoft, Alphabet and Alibaba to gobble up the Public cloud market: Morningstar report

By 2021, the Public cloud market globally is expected to get consolidated among four top players Amazon, Microsoft, Alphabet and Alibaba, according to Morningstar’s Technology Observer reportPankaj Maru | ETCIO | Updated: July 25, 2017, 07:54 IST

“Despite a long runway for growth, we believe the public cloud market will ultimately consolidate around a handful of players: Amazon, Microsoft, Alphabet, and Alibaba,” states Morningstar’s Technology Observer report. It predicts that this Public cloud market consolidation is likely to happen globally by 2021.

This consolidation is likely to be driven and differentiated by vendor’s monetary strength and infrastructure capabilities.

“The two big factors, we think, will mitigate several vendors from having success in this market are the capital intensity required to build out global data center infrastructure (on the order of tens of billions of dollars),” says Rodney Nelson, Equity Analyst - Morningstar Research Services LLC.

“And second, once the infrastructure is in place, cloud vendors need to build out a set of premium, differentiated services to attract enterprise customers in order to help them not only run their current set of IT systems more efficiently, but drive their businesses forward with modern solutions for AI/machine learning/IoT/serverless computing/edge computing, etc.,” adds Nelson.

This consolidation will also provide Amazon and Microsoft a massive market advantage that is expected to last for several years to come. The report expects AWS to deliver an average annual growth of 32% over next five year period and 14% of the total revenue during the same period.

On the other, Microsoft Azure is expected to continue as the second biggest public cloud vendor in terms of revenue in coming years and as per estimates Azure will contribute over 35% of Microsoft’s operating profits by 2026.

Given Google’s expertise in AI and analytics, it is in a distinct position compared to Microsoft or Amazon as a specialty cloud vendor, which also compliments as a backup vendor.

“We view Google as a project-oriented vendor with expertise in AI and analytics, but we think most companies that utilize either Microsoft or Amazon will utilize Google as a backup or a specialty cloud vendor to support specific initiatives around these themes. In general, we expect this market to consolidate over the next ten years,” explains Nelson.

Interestingly, Alibaba’s AliCloud will also enjoy an AWS like dominance in the incredibly large China market, which according to Nelson is more than enough to support its business efforts in the cloud. Alibaba already has a market leadership in China with roughly 40% share, similar to Amazon’s market share in the US.

According to 199IT, AliCloud's IaaS revenue is the largest in China and fourth largest globally. Its market share in China has increased to 41% in 2016 from 31% in 2015 but its revenue is projected to grow 45% annually over the next five years as per the report.

However, Alibaba is unlikely to have more success internationally largely due to the perception of being a Chinese tech firm. “Being a Chinese tech firm operating in western markets carries a certain stigma that will be difficult to overcome,” Nelson points out..

Further, Nelson observes that the Chinese market is so large and highly underpenetrated that Alibaba can achieve substantial revenue scale without having a ton of international success. Besides, Alibaba’s Chinese customers with global interests will able to leverage company’s datacenters placed in international locales, since it has already begun to build out.

Surprisingly, the report hasn’t given much weightage to IBM and Oracle in terms of Public cloud market. It is discounting the both companies’ success in terms of public cloud businesses largely because they are lagging several years behind in terms of investment and also lack a strategy for a broad set of premium services..

The big issue here says Nelson is that neither company offers much more than very basic compute and storage services in their public cloud environments.

In case of IBM, Nelson points out that company’s go-to-market strategy has undergone several changes over the last few years. “IBM seems more focused on delivering a minimum viable product while lending IT services revenues to support that business instead,” he says.

“Likewise Oracle hasn’t made the requisite capital commitments that we believe are a prerequisite to compete in this market,” adds Nelson. For instance, Oracle’s Gen 2 cloud offering was only made available in the US last month.

Moreover, the predicted Public cloud market’s consolidation is likely to have a considerable impact on the regional or local cloud vendors. “It's possible that certain regional players will continue to exist with very modest operations, but they won’t be able to serve globally distributed customers that have international operations,” argues Nelson.

“The demands of these customers are simply too great to rely on a regional cloud vendor to ensure they won’t have latency, redundancy or failover issues that could substantially harm the customers IT environment,” concludes Nelson.

Overall, by 2021, Amazon is predicted to lead this consolidated Public cloud market, followed by Microsoft, Alphabet and Alibaba. The consolidation will also have an impact on the pricing of cloud services like compute and storage expected to reduce due to reduction in the cost of delivering those services based on Moore’s law.

In addition, most cloud vendors can mitigate data sovereignty issues by having data center assets in the regions where the customer has its operations.

Sponsored Stories

Subscribe ETCIO Newsletter

Prasad Rai, Vice President, Applications, Oracle India speaks on how enterprise users can now migrate their ERP application to its cloud platform in a smarter, speedier and safer manner, and how it could be the last upgrade they will ever do.